Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Is Success in McDonald's Cards?

Mickey D's promotes reusable gift cards.

McDonald's(NYSE:MCD) introduced a reusable stored-value card this year in an effort to boost sales at its restaurants. Now it's ready to back up the Arch Card with a beefed-up marketing campaign.

According to The Associated Press, McDonald's wants everyone to know about the Arch Card and has waited until now to exploit the public's gift-giving mood during the holiday season. McDonald's intends to distribute $22 million in free cards. Some will be given to Southwest Airlines patrons, while other Arch Cards, preloaded with $1, will be bundled with McDonald's popular chicken items.

When financial historians eventually review the greatest innovations in retail during the last century, the advent of the gift card will surely rank among the upper echelon. Sound like goofy hyperbole? It isn't. Fast-food joints such as Wendy's(NYSE:WEN), Yum! Brands(NYSE:YUM), and Burger King thrive on moving people in and out quickly. Stored-value cards make for faster transactions, and unlike paper gift certificates, there's no need to give back change. That's good news for shareholders, since more money stays in their company's coffers.

It's hardly news that gift cards get more popular every year. One thing I like about McDonald's Arch Card marketing campaign is its intent to emphasize the cards' convenience once the company has finished playing up the holidays. I presume that will include highlighting the ability to allocate funds on the card for frequent McDonald's visits. The company has a lot of loyal patrons (I eat there a lot), and it only makes sense to try convincing them to earmark some of their discretionary monies for the card.

One mistake I see with this initiative is the forced denominations ($5, $10, $25, or $50) customers must choose from. I think consumers would much rather choose the amounts they want to store. Another concern: With McDonald's under fire for its fat-laden menu, will these cards be seen as tools to make eating unhealthy fare even easier?

McDonald's won't need to worry about its critics, though. It would love to replicate the success of the Starbucks(NASDAQ:SBUX) card program, which Rex Moore wrote about a few years back. And just imagine if Coinstar(NASDAQ:CSTR) and McDonald's hooked up for a gift-card program. The change-collecting company already allows conversion of change into vouchers good at Amazon.com(NASDAQ:AMZN), Movie Gallery(NASDAQ:MOVI), and others, with no fee charged to the consumer.

According to McDonald's website, its global same-store sales increased 3.4% in October. That's the 30th straight month of comps increases, but it should be noted that comps growth for October 2004 was much higher, coming in at 6.1%.

Can the Arch Card help Mickey D's regain such sales levels? Not on its own, of course, but if franchisees can perform more efficient transactions by selling a Starbucks-load of Arch Cards, this little holiday bundle might indeed be a harbinger of shareholder joy.